BIL vs GSY in Hedges

[cosmos2019]

Frank,
What are your thoughts on replacing GSY with BIL in the hedge and treasury hedge strategies? Given the recent volatility in GSY and the fact that it contains corporates and not 100% treasuries, does it make sense to change these standard LI portfolios to be more conservative going forward?

Thanks,
Martin

[Frank1 Grossmann]

BIL is like cash and very safe. It returns only about half of GSY but instead of buying BIL you can as well just leave your money on your broker account. With IB for example you get nearly the same interest rate as for BIL and you avoid the trading costs of the ETF.
GSY lost due to liquidity problems but I am quite sure these losses will disappear with volatility going down. Many of these Treasury ETFs are still trading below its asset value, which is like a free lunch for bigger investors in normal times, but at the moment many have other priorities.

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